The #1 way new CS grads get completely f'd by startups

[ The original post can be seen on reddit /r/cscareerquestions.]

Hi everyone. I've been seeing a lot of threads here regarding whether or not it's a good idea to join a startup. For background, I've been in the industry for a decade as a founder, and also as a director level manager at a late stage pre-IPO company. The last job I was at was running a 100+ person org at a public company.

The reason why I'm making this post is just to draw attention to something that I see commonly happening that doesn't actually get talked about enough nor is understood well enough. It's something I've seen time and time again and I have directly managed / mentored people that were put in this position and "wished someone had told them about it earlier".

That one thing that seems to really, really screw many new CS grads over are stock option exercises.

Granted, there are many ways startups can screw you over, but those ways are a bit more obvious, sometimes intentional and is probably already well covered by other sources which I won't touch on. The problem with stock option exercises is that it's very nuanced, opaque, and can trap you into an uncomfortable no-win situation and it's often done unintentionally.

Story time: I was at a late stage startup that had been around for almost 9 years. The startup itself was initially fast growing, but towards the end, the growth slowed down a bit. It felt like every year, the CEO was saying how an "IPO was just around the corner" but that "around the corner" never came (the company would later get acquired, but that took 3 years from the first "around the corner" memo).

On my team, there were 3 ex new grads that have been with the company for 5+ years. Granted, they weren't new grads anymore, but this was the first job they took coming out of college.

The problem they encountered was that fortunately, the options that they were granted 5 years ago have now grown to be something more. The HUGE downside is that they had no extra cash to exercise their options since they were poor new grads and had no clarity on when liquidity would be coming their way. So, they were in a situation where they would have wanted to leave YEARS ago for different opportunities / change of pace, but were unable to because the exercise window at this company was only 90 days.

That means that from the period after leaving the company, they only had 90 days to decide if they wanted to pay low hundreds of thousands of dollars upfront to purchase their shares that they no idea if they would be worth something.

Because of this uncertainty, they chose to stick around because an IPO was just "around the corner" and it ate away at their mental health. This startup was based in SF and some people had dreams of moving to NYC, or relocating with a significant other and they had to put these plans on hold because there was no way they wanted to leave the job and risk losing potentially hundreds of thousands of dollars.

I would say that if you're planning on joining a startup, particularly a mid-stage to early-late stage company, definitely know these things:

  1. What is the exercise window? Will the founders issue an extension?
  2. Are there secondary trading restrictions that will prevent me from selling my shares to a private individual?
  3. Are there any future tender rounds?
  4. What are closest public market comps to this company? Is it really realistic that this company can IPO in 2-4 years?

I know these questions can be difficult to answer, but I think it's really necessary to do your due diligence before taking on a role at a startup. Sometimes it works out, sometimes it doesn't, but definitely go into it with solid understanding of what the future potential outcomes can be.

If anyone has a job offer out there and needs some help evaluating an offer or opportunity, feel free to hit me up and I always glad to answer any questions!

Good luck out there! ❤️❤️

Edit: Wow holy shit guys. This really blew up. Trying to answer as many questions in my DM's as possible. Lots of repeating questions here so if you prefer to keep in touch, feel free to DM at Vu#6235 on Discord or hang out on this channel here